The first NFP numbers for 2008 are due for release today with a figure of 70k being forecast. As always any number above will be good for the dollar and any figure below bad. This first set of data is important when taken with yesterday’s ADP numbers which showed that 40k new jobs were created in December. I believe that it is the employment figures which will set the tone for the dollar in this election year.

Healthy employment figures are good for the economy and for the ruling party. Apparently this is the view taken by President Bush who is due to meet with Ben Bernanke and Henry Paulson as they discuss measures to stimulate the economy amid slowing growth.

However, once the market’s knee jerk reaction to the nfp numbers has subsided it is the ISM data released 90 mins later which often determines the medium term direction of the dollar. As a leading indicator The Institute of Supply Management (ISM) Non-Manufacturing Index measures the activity level of purchasing managers in the services sector, with a reading above 50 indicating expansion. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance and can therefore give the most up to date indication of overall economic performance.

Although many traders avoid nfp because of excessive volatility in the major pairs trading opportunities can also be found in the carry trade pairs. For example should the headline numbers disappoint the yen crosses will go down with the pound yen being the most volatile as the markets become risk averse.  As the euro yen tends to move with the S&P 500 it is this index which lead the way with this pair.